The UAE Labour Market Reform – Resolutions 765 of 2015 (termination of contracts) and 766 of 2015 (Labour ban) of the UAE Labour Law
The implementation of the UAE labour market reform was carried out over three resolutions which simultaneously came into effect on January 1, 2016. The aim of the Ministry of Labour was to create transparency in the employment relationship and ensure the supervision of contracts.
First of which, Ministerial Resolution 764 of 2015, concerns the standard employment contracts and offer letters, and the requirement for an employer to file all employment offers at the Ministry of Labour.
Comparatively, the resolutions that substantially affected the UAE labour law are:
The Ministerial Resolution 765 of 2015, which draws out the rules for termination of employment contracts
The Ministerial Resolution 766 of 2015, regulating the issuance of work permits by a new employer and labour ban.
Resolution 765 - Rules and Conditions for the Termination of Employment Relations
What if you have been reading or hearing different information as opposed to the provisions of this new resolution?
Since it's date of effect, the application of the Ministerial Resolution 765 takes precedence over any previous resolutions that might have conflicting or inconsistent provisions. Under this Ministerial Resolution is the regulation and classification of unlimited and limited term employment contracts.
Term (Limited) Contracts
- Signing a fixed term contract can be done for a term not exceeding two (2) years The Ministry of Labour will not register any limited contracts exceeding two (2) years.
- Employee and employer can mutually agree to terminate the contract.
- However, where termination is not mutual, the resolution has set forth obligations which must be fulfilled by both parties.
- Period of notice: According to the UAE Labour Law, parties can terminate an employment agreement for reasons stated in Articles 120 (for employers) of the Federal Labour Law, and Article 121 of the Federal Labour Law (for employees) WITHOUT prior notice.
- If this is not the case, then the employer or employee must give prior written notice. Parties to the employment contract will decide on a period of notification, not less than one month and not exceeding three months, in which the notifying party must advise the other party in writing about their intention to terminate the contract unilaterally. If renewal took place prior to entry into force of this Resolution and both parties failed to agree on a notice period, such period shall be three (3) months.
- Throughout the duration of the notice period, both parties must fulfill their contractual obligations. What does this mean? Salary and other benefits must continue to be paid by the employer, and the employee cannot stop working.
- Indemnification of the other party: The party that unilaterally terminates the contract have to pay the other party an agreed amount of money, which cannot exceed three months of gross salary, If renewal took place prior to entry into force of this Resolution and both parties failed to specify the amount of such consideration, it shall be equivalent the total pay of three (3) months. .
Non-Term (Unlimited) ContractsTermination of unlimited contracts:
- Both parties can mutually terminate the contract.
- If a party wishes to terminate the contract unilaterally, the notice period is the same as limited contracts, which is from one month to a maximum of three months, depending on what the parties have agreed to in their contract. The UAE Labour Law (Federal Law) Articles 120 and 121 also apply to the unlimited contracts regarding termination without prior notice.
- Contractual obligations are to be fulfilled within the notice period as pointed out above.
Additionally, the Ministerial Resolution 765 Article 2 states the events that can de facto terminate an employment agreement:
- Employer's failure to comply with contractual and legal obligations such as not paying salaries and benefits for more than 60 days.
- The worker has filed a court complaint against an employer who failed to secure employment of the worker as a result of the shutting down of the employer's business, in which case a report by Labour Inspection attesting to the fact that the business has been inactive for a period exceeding two (2) months must be obtained and the worker must have reported to the Ministry during this period as per Article No. 2.2 of the Ministerial Resolution No. 765
- The Ministry of Labour gave a final ruling in favor of the employee as a result of a complaint that involves indemnification of arbitrary termination, denied benefits and wages for no justified reason, and early termination of a limited contract.
If employee and employer do not fulfill their legal obligations while terminating a contract, the other party is fully entitled to pursue legal recourse.
Resolution 766 - Rules and Conditions for granting a permit to a worker for employment by a new employer / Labour ban
In what circumstances can you join a new company and avoid the UAE labour ban?
The new UAE labour market reform brought further clarification to this issue and decreased the probability of labour ban for skilled workers.
Fixed (Limited) Contracts
- The contract has expired.
- Employee and employer consensually terminate the contract, after the employee has completed six (6) months. However, the 6-month period does not apply to skilled workers: Level 1- University, Level 2-diploma, Level 3-High School.
- The employer decided to terminate the employee's contract after six months of employment. Again, the 6-month period does not apply to Levels 1, 2 and 3.
- If either party intend to terminate the contract unilaterally after its renewal, then the following must be fulfilled: a notice period (1 to 3 months), contractual obligations, and a maximum of three months salary indemnification.
Non-Term (Unlimited) Contracts
- Mutual decision to terminate the agreement after six months of employment except for Levels 1, 2 and 3.
- The decision to terminate the agreement unilaterally with prior notice (1 to 3 months) after six months of employment except for Levels 1, 2 and 3.
Exceptions for granting a new work permit to the worker shall be for the same reasons mentioned above in Article 2 of Resolution 765.
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Overall, the Ministry aimed to make the employment relationship more transparent and balance the rights and interests of employees and employers through the UAE labour market reform. Expat workers, new to the country's system, will gain more clarity under the UAE Labour ban.
Our specialized legal professionals are ready to help you and your business with all labour law matters in the UAE, as well as provide legal assistance in all legal matters relating to your company.